Starbucks is getting a roasting

Judging by Starbucks' latest figures, expensive milky coffees might be the first to go as belts tighten...

by
Last Updated: 06 Nov 2012

Starbucks’s share price plunged again yesterday after the Seattle-based coffee giant was forced to slash its 2008 forecasts – it’s now expecting profits to be ‘somewhat lower’ than last year. Chairman Howard Schultz says the chain is getting roasted by the housing slump and the rising cost of food and fuel, as US punters are forced to cut down on their skinny soya frappucinos. In fact, he says, trading conditions are as bad as they’ve ever been at any time in the chain’s 37-year history.
 
Apparently the chain has been really struggling in California and Florida, normally the source of one-third of its US revenue – both of which are seeing a major downtunr in the housing market. So chances are that a similar slowdown on this side of the pond might affect our eagerness for milky lattes too.

Schultz is facing a tough year. Earlier this year he fired CEO Jim McDonald and took back the executive reins, suggesting that the Starbucks juggernaut had lost its way. He’s now started a turnaround plan to get it back on track – revamping the menu, closing down under-performing stores, slowing expansion, and most of all, trying to make Starbucks feel more like a coffee shop and less like a soulless, over-priced fast-food outlet.

In a leaked company memo last year, Schultz warned that Starbucks had lost its ‘romance and theatre’ – we’re not totally sure what this means, but he seems to think the solution involves grinding its own beans (so the store actually smells of coffee, rather than paninis) and introducing the (famously romantic) free wi-fi. He’s also selling Joni Mitchell CDs in stores, which again doesn’t sound like a great way of cheering everyone up in the morning.

Still, in principle his turnaround plan (which includes a big online customer consultation exercise, MyStarbucksIdea.com) makes a lot of sense. The problem is, he’s trying to do it in a very tough retail environment – if people start tightening their purse strings, expensive discretionary purchases like coffee are likely to be the first to go (not least because coffee aficionados – likely to be the most loyal customers – tend to be a bit sniffy about Starbucks, on the grounds that you can barely taste the coffee).

So we wouldn't blame Schultz if he isn’t feeling full of beans at the moment...

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today